15

‐ 2137

‐ cv

Mitchell v. Garrison Protective Servs., Inc.



## In the



# United States Court of Appeals

**for the Second Circuit**

A UGUST T ERM 2015

No. 15

‐ 2137

‐ cv

K EESHA M ITCHELL

, T HERESA C AMPBELL

,

S EANNETTE C AMPBELL

, T ANISHA S ELBY

, Plaintiffs

‐ Appellees

,

v.

G ARRISON P ROTECTIVE S ERVICES

, I NC

., Interested Party

‐ Appellant

,

L YONS P ROFESSIONAL S ERVICES

, I NC

., R ICHARD T RIM

,

T ERRY T ATUM

, C HRISTOPHER M. L YONS

, Defendants.

On Appeal from the United States District Court

for the Eastern District of New York

S UBMITTED : A PRIL 4, 2016

D ECIDED : A PRIL 11, 20162 Before: K EARSE

, C ABRANES

, and C HIN

, Circuit Judges

.

This case primarily involves a challenge by interested party

‐

appellant Garrison Protective Services, Inc. (“Garrison”) to various

factual determinations made by the District Court (Brian M. Cogan,

Judge ) in the course of granting a motion to enforce a judgment. We

conclude that the District Court did not err, much less clearly err, in

those determinations, and therefore AFFIRM the June 16, 2015

judgment of the District Court. We also conclude that the District

Court properly construed plaintiffs’ motion pursuant to New York

Civil Practice Law and Rules (“CPLR”) § 5225 as a plenary action

pursuant to New York’s substantive law of fraudulent transfers.

Chidi A. Eze, Brooklyn, NY, for Plaintiffs

‐

Appellees

.

Raymond A. Giusto, Law Offices of

Raymond A. Giusto, P.C., West Bay Shore,

NY, for Interested Party

‐ Appellant.

P ER C URIAM :

Interested party

‐ appellant Garrison Protective Services, Inc.

(“Garrison”) appeals from a June 16, 2015 judgment of the District3 Court, which followed a decision of June 8, 2015, granting a motion

by plaintiffs

‐ appellants Keesha Mitchell, Theresa Campbell,

Seannette Campbell, and Tanisha Selby (“plaintiffs”) to enforce a

judgment.

This case originated in a sex

‐ discrimination lawsuit by

plaintiffs against their former employer, Lyons Professional Services,

Inc. (“LPS”), a security guard company. We described the underlying

action in Mitchell v. Lyons Professional Services, Inc.

, 708 F.3d 463, 465–

66 (2d Cir. 2013) (“ Mitchell I ”). Plaintiffs obtained a default judgment

of $266,590, and then sought to enforce it pursuant to Rule 69(a) of

the Federal Rules of Civil Procedure. Rule 69(a)(1) provides, in

relevant part, that the “procedure on execution” in federal court

upon a money judgment “must accord with the procedure of the

state where the court is located.” Accordingly, because plaintiffs

sought to enforce a judgment in the Eastern District of New York,

they made their motion pursuant to New York state law—

specifically, New York Civil Practice Law and Rules (“CPLR”)

§ 5225. 1

1 CPLR § 5225(b) provides in full:

(b) Property not in the possession of judgment debtor. Upon a

special proceeding commenced by the judgment creditor, against a

person in possession or custody of money or other personal

property in which the judgment debtor has an interest, or against a

person who is a transferee of money or other personal property

from the judgment debtor, where it is shown that the judgment

debtor is entitled to the possession of such property or that the

judgment creditor ʹ s rights to the property are superior to those of4 As relevant here, plaintiffs alleged that LPS, acting through its

sole shareholder, Christopher Lyons (“Lyons”), fraudulently

transferred its assets to Garrison, another security guard company, in

violation of New York Debtor and Creditor Law (“DCL”) § 273

‐ a. 2

Following a bench trial, the District Court found that Lyons had

entered into a “Consulting Agreement” with Garrison seven weeks

after entry of the default judgment. Mitchell v. Lyons Prof’l Servs., Inc.

,

No. 09

‐ Civ.

‐ 1587 (BMC), 2013 WL 4710431, at *1 (E.D.N.Y. Sept. 1,

2013) (“ Mitchell II ”). The District Court further found that “[a]s part

of that contract, Lyons agreed to attempt to steer accounts and clients

then serviced by LPS to Garrison, in exchange for a consulting fee

the transferee, the court shall require such person to pay the

money, or so much of it as is sufficient to satisfy the judgment, to

the judgment creditor and, if the amount to be so paid is

insufficient to satisfy the judgment, to deliver any other personal

property, or so much of it as is of sufficient value to satisfy the

judgment, to a designated sheriff. Costs of the proceeding shall not

be awarded against a person who did not dispute the judgment

debtor ʹ s interest or right to possession. Notice of the proceeding

shall also be served upon the judgment debtor in the same manner

as a summons or by registered or certified mail, return receipt

requested. The court may permit the judgment debtor to intervene

in the proceeding. The court may permit any adverse claimant to

intervene in the proceeding and may determine his rights in

accordance with section 5239.

2 DCL § 273

‐ a provides that “[e]very conveyance made without fair

consideration when the person making it is a defendant in an action for money

damages or a judgment in such an action has been docketed against him, is

fraudulent as to the plaintiff in that action without regard to the actual intent of

the defendant if, after final judgment for the plaintiff, the defendant fails to satisfy

the judgment.”5 based on the annual revenues that they generated.” Mitchell v.

Garrison Protective Servs., Inc.

, 579 F. App’x 18, 20 (2d Cir. 2014)

(“ Mitchell III ”). “LPS received nothing under the agreement,” and

after “Garrison took over the LPS accounts, LPS was essentially shut

down.” Id. (internal quotation marks omitted).

Based on these and other findings, the District Court

determined that the customer accounts in question—also known as

LPS’s “book of business”—were assets that LPS had fraudulently

transferred to Garrison, and that the value of those assets exceeded

the value of plaintiffs’ default judgment. Accordingly, the District

Court granted plaintiffs’ motion and entered a judgment against

Lyons and Garrison, jointly and severally, for $266,590. Id.

Garrison appealed. As relevant here, Garrison argued that

LPS’s book of business was not subject to enforcement pursuant to

CPLR § 5225(b). That section authorizes execution only against the

assets specified in CPLR § 5201(b), which provides in relevant part

that “[a] money judgment may be enforced against any property

which could be assigned or transferred.” LPS’s book of business was

not assignable or transferrable, Garrison argued, because it consisted

only of contracts that were terminable on thirty days’ notice.

We determined that the record was insufficient to rule

conclusively on Garrison’s argument, and we remanded the cause to

the District Court for further clarification. Mitchell III

, 579 F. App’x at

23. In particular, we asked the District Court to consider whether the

book of business was assignable or transferrable: “If the book of6 business was, in fact, transferred from LPS to Garrison, then it is

property for the purposes of § 5201(b). If, however, the LPS clients

simply took their business elsewhere, it is not.” Id. We also asked the

District Court to consider whether the book of business “contained

other property, such as customer lists or other proprietary

information,” that might have been transferrable. Id. 3

On remand, the District Court reframed our question. Because

plaintiffs brought their motion pursuant to CPLR § 5225(b), we had

treated this case as turning on whether LPS’s book of business was

transferrable property under CPLR § 5201(b). See Mitchell III

, 579 F.

App’x at 21. But as the District Court rightly points out, and as we

recognized in Mitchell III

, § 5225(b) creates a procedural mechanism by

which judgment creditors can enforce a money judgment, rather than

a new substantive right. See N. Mariana Islands v. Canadian Imperial

Bank of Commerce

, 717 F.3d 266, 267 (2d Cir. 2013).

That mechanism, known as a “special proceeding,” has no

equivalent under the Federal Rules of Civil Procedure, which

“recognize only ‘one form of action—the civil action.’” See Vera v.

Republic of Cuba

, 802 F.3d 242, 244 n.3 (2d Cir. 2015) (quoting Fed. R.

Civ. P. 2). It is unclear, therefore, “how a party in federal court in

New York satisfies the ‘special proceeding’ requirements of”

3 As our use of the word “contained” suggests, the term “book of

business” tends to conflate the physical list of accounts or clients with the value of

the accounts or clients themselves. Cf. Book of Business

, Black’s Law Dictionary (10th

ed. 2014).7 § 5225(b). See Vera

, 802 F.3d at 244 n.3 (noting that we have never

addressed this question in a published opinion)

.

What is clear, however, is that a special proceeding under

§ 5225(b) is not the only mechanism for avoiding a fraudulent

transfer in New York. Rather, creditors may instead bring a plenary

action to avoid the transfer under New York substantive law. See, e.g.

,

Friedman v. Friedman

, 509 N.Y.S.2d 617, 618 (2d Dep’t 1986) (“[T]he

remedies provided in the Debtor and Creditor Law governing

fraudulent conveyances

. . . are properly sought by way of a plenary

action

. . . .”).

Because there is no such thing as a “special proceeding” in

federal court, we have afforded district courts in New York some

leeway in determining whether to construe a particular fraudulent

‐

transfer suit as a plenary action or a special proceeding. For instance,

we have suggested that federal courts may construe an action

pursuant to DCL § 273

‐ a as “a plenary action based on New York

substantive law,” even if “the parties

. . . assumed that [§] 5225(b)

provide[d] the procedural basis” for the suit. See HBE Leasing Corp. v.

Frank

, 48 F.3d 623, 633 n.7 (2d Cir. 1995). Similarly, we have indicated

in dicta “that the filing requirements of a ‘special proceeding’ under

New York law need not be strictly adhered to as long as there is no

prejudice to the opposing party in giving notice of the claims and

framing the issues.” See Vera

, 802 F.3d at 244 n.3.

These considerations lead us to conclude that although

plaintiffs initially described their motion as having been filed8 pursuant to § 5225(b), the District Court properly construed it as a

plenary action. Several observations specific to this case reinforce our

conclusion. As the District Court noted, many aspects of the

proceeding below conformed more closely to the form of a plenary

action than that of a special proceeding. 4 Moreover, Garrison has not

shown that it suffered any prejudice from the Court’s decision to

recast plaintiffs’ motion, nor has Garrison argued that a plenary

action is improper under New York law or Rule 69(a). 5 We note,

finally, that plaintiffs assert a substantive right derived from the

DCL, not from CPLR Article 52 itself. Cf. Cruz v. TD Bank, N.A.

, 742

F.3d 520 (2d Cir. 2013) (noting that an Article 52 special proceeding is

the exclusive mechanism for relief for violations of the Exempt

Income Protection Act, which is codified in scattered sections of

CPLR Article 52).

4 For instance, the proceeding before the District Court involved more

extensive discovery than would normally be available in a special proceeding. See

Mitchell v. Lyons Prof’l Servs., Inc.

, 109 F. Supp. 3d 555, 566 (E.D.N.Y. 2015)

(“ Mitchell IV ”).

5 For instance, Garrison notes that plaintiffs’ motion “relied upon New

York Debtor

‐ Creditor Law[ ] §§ 273, 274, 276 and 278,” and that “[t]hose statutes

were the only applicable law before the Court and the basis upon which Garrison

defended the motion.” Garrison Br. 5. Similarly, while Garrison’s brief on appeal

discusses DCL § 273

‐ a and related DCL provisions in great detail, it does not cite

CPLR § 5201, much less argue that its definition of transferable property should

control here. We also note that § 273

‐ a was invoked early in this litigation, which

gave sufficient notice to allow Garrison to defend against arguments relevant to a

plenary action.9 Accordingly, we agree with the District Court that plaintiffs’

claim depends solely on the definition of a fraudulent transfer under

DCL § 273

‐ a. To prevail under that section, “a plaintiff must establish

(1) that the conveyance was made without fair consideration; (2) that

the conveyor is a defendant in an action for money damages or that a

judgment in such action has been docketed against him; and (3) that

the defendant has failed to satisfy the judgment.” Mitchell III

, 579 F.

App’x at 21 (quoting Grace v. Bank Leumi Trust Co. of N.Y., 443 F.3d

180, 188 (2d Cir. 2006)). We agree with the District Court that

plaintiffs have met these requirements, and we reject as meritless

Garrison’s argument that the District Court erred (1) in finding that

LPS’s customer accounts were assets and in assigning them a value,

(2) in finding that LPS, rather than Lyons, had owned and transferred

the accounts to Garrison, and (3) in finding that the accounts had

been transferred without the payment of fair consideration.

Because this appeal follows a bench trial, “we review the

district court’s findings of fact for clear error and conclusions of law

and mixed questions de novo .” Connors v. Conn. Gen. Life Ins. Co.

, 272

F.3d 127, 135 (2d Cir. 2001). As we noted the last time this case was

before us, a company’s “book of business” may be an asset under

New York law. See 579 F. App’x at 22 (citing cases). The value of a

particular asset is a question of fact, as is whether a transfer occurred

and whether fair consideration was paid. See, e.g.

, Citizens Bank of

Clearwater v. Hunt

, 927 F.2d 707, 711, 712 (2d Cir. 1991); Matter of

Estate of Corning

, 488 N.Y.S.2d 477, 481 (3d Dep’t 1985). Here, the

District Court found that the book of business in question was in fact10 transferred to Garrison, that the book of business was worth at least

$300,000, that it originally belonged to LPS (not Lyons), and that LPS

itself received no consideration for the transfer. We see nothing in the

District Court’s thorough opinion to suggest that it erred in making

these factual findings, much less clearly erred. 6

CONCLUSION

We have reviewed all of the arguments raised by Garrison on

appeal and find them to be without merit. For the foregoing reasons,

we AFFIRM the June 16, 2015 judgment of the District Court.

6 Indeed, Garrison itself has described LPS’s customer account list as a

valuable “asset.” The Consulting Agreement between Garrison and Lyons

provided that “the names and addresses of Garrison’s customers

. . . are valuable

, special and unique assets of the Garrison’s business, including the customers to be

procured by [Lyons] .” App. 148 (emphasis supplied). The Consulting Agreement

further specified that Garrison expected to derive “annual revenues of at least

$1,379,622.00” from those accounts. App. 147.